Now I could be totally wrong about that, and also totally wrong about this, but I have a hunch Bitcoin will dramatically decrease in value next year and might go out. I think it will also bring down other cryptocurrencies, including Litecoin, Peercoin, and the so-called “Dogecoin,” which is actually real. Although it’s also hit the reputation of these cryptocurrencies already…

Documents purportedly leaked from the company lay out the scale of the problem. An 11-page “Crisis Strategy Draft” published on the blog of entrepreneur and Bitcoin enthusiast Ryan Selkis says that 740,000 bitcoins are missing from Mt. Gox, which roughly translates to hundreds of millions of dollars’ worth of losses, although figures are fuzzy given Bitcoin’s extreme volatility.

“At the risk of appearing hyperbolic, this could be the end of Bitcoin, at least for most of the public,” the draft said.

In a post to his blog, Selkis said that the document was handed to him by a “reliable source” and that several people close to the company had confirmed the figures. Reached by phone, he declined further comment. The Japanese government, meanwhile, has not announced any formal investigation.

Not all agree, however:

Now that what’s left of Mt. Gox’s credibility has been shredded, the company is unlikely to rebound even with a bailout from investors or other members of the Bitcoin community. That leaves the question of what comes next. A host of funded exchanges are ready to take its place. But for an exchange to regain users’ trust after the fall of Gox, it will need new transparency standards and safeguards, some of which have already been proposed.

Others see currency exchanges as a gap technology that the Bitcoin economy is poised to move beyond. Once people are being paid in Bitcoin and spending money in Bitcoin, there won’t be as much need to buy it for cash, which is the primary function of an exchange. “These large exchanges that are international and global are more important in the early stages of Bitcoin when we need price discovery,” says Jon Matonis, director of the Bitcoin Foundation. “You don’t need them in the long run because in a true Bitcoin economy you’ll have a closed-loop system.”

There are precedents for Bitcoin bailouts, as when the Polish exchange Bitomat accidentally erased all its customers’ bitcoins. Mt. Gox bought the company and reimbursed its customers. But a bailout of Mt. Gox would be contrary to Bitcoin’s libertarian ethos and it doesn’t seem necessary. The price has already rebounded. A number of well-funded, reputable Bitcoin companies are standing by ready to sell the idea to the vast majority of potential users who have never used the currency or heard of Mt. Gox. And anyone who wants a bailout is likely to be shamed by the sense of self-determinism that kickstarted Bitcoin in the first place.

Personally, I find myself more with the latter viewpoint than the former. I still think Bitcoin will go out; I just don’t think it will be Mt. Gox specifically. There are going to be other things bringing it down, namely further instances of major theft and fraud and bad management. There won’t be just one issue.

I do want to slightly modify part of my above prediction, namely this:

I think it will also bring down other cryptocurrencies, including Litecoin, Peercoin, and the so-called “Dogecoin,” which is actually real.

Roger Ver, a big investor in Mt. Gox, said he did not know if he would ever get any of his lost bitcoin back.

“But the important thing to realize is that Mt. Gox is just one company using bitcoin. The bitcoin technology itself is still absolutely amazing,” he said.

“Even if one email service provider is having a problem that doesn’t mean people are going to stop using email. It’s the same with bitcoin.”

Ver is right, but he’s not expanding it far enough. Even if Bitcoin fails, it will not completely destroy the general cryptocurrency technology or concept. The way I see it now, Bitcoin is basically going to be the sacrificial lamb. It will get a lot of attention, a lot of press–and it will hit every bloody pitfall on the way up and out. Imagine, if you will, a Macross Missile Massacre heading straight for a convoy of cryptocurrencies. Bitcoin will be that ship that takes all of the blows and is destroyed, but the rest of the convoy will keep going–many damaged, perhaps a few unscathed. And the developers of these cryptocurrencies will learn from Bitcoin’s failures and push out innovations that will improve their products. (Granted, most of these cryptocurrencies, if not all, are very decentralized, so there’s no one person controlling the network, but I think the users will work out something.)

Will these cryptocurrencies replace national currencies? Barring a catastrophic global monetary collapse–which, to be fair, there is enough stupidity going on at central banks and governments around the world that we can’t definitely rule that out–I would say no. People are going to use it for speculative purposes, for liquidity, and occasionally to buy things, but for the most part I just can’t see them being used for everyday transactions by the majority of the populace. That is going to take a lot of convincing to get people to move outside their comfort zone. For better or worse, being attached to a government makes a currency look “safe”. It will take magic or tragedy to sever that thought in people’s minds.

One thing I do find interesting about all this is a concept and organization known as Mastercoin. I visited their booth at the International Students for Liberty Conference this year and was fascinated. It’s an attempt to have a sort of meta-protocol on top of the Bitcoin–and other cryptocurrencies’–protocol. It would facilitate seemless transfers between cryptocurrencies and people, and allow the development of what they term “smart contracts.” An example would be if I and someone else had a bet on what the weather would be, and I had Bitcoins and she had Litecoins. The smart contract would check the weather, and instantly transfer over the money bet from one person to the other and convert it, without us knowing what the other person has in terms of currency. But it was a lot more than that; the guy I was talking to said that it would permit the creation of infinite cryptocurrencies which could be used to support any number of things. One example was a hypothetical “Mathcoin,” which would support mathematical research. If a company accepted Mathcoin and people used it to buy things, the usage of Mathcoin–and the mining, I think–would instrinsically support mathematical research.

I’m doing it a major disservice; the Conference was a couple of weeks ago (and it gave me a nasty cough I haven’t really recovered from) and it was a very complicated subject. But it was still fascinating that people are working on this kind of stuff right now. Will it turn into anything? I have no idea. But come on, isn’t this interesting?